Does Labour’s youth jobs guarantee add up?

“Under David Cameron’s government the number of young people aged 18-24 claiming Jobseeker’s Allowance for over a year has doubled – from 28,300 in May 2010 to 56,100 today.”Labour press release, 10 March 2013

There were 28,300 claimants aged 18 to 24 at the time of the last general election in May 2010, and there were 56,100 in January this year.

Expressed as an unemployment rate, rather than a number of people, things look even worse. Some 18.3 per cent of the youth labour force is currently claiming out-of-work benefits. In May 2010 it was 6.6 per cent.

These are young people who are “economically active”, which might include people studying part-time and looking for work but does not include full-time students.

A bit of context is needed here. Youth unemployment is a problem that has dogged successive governments, not just this one. In fact, the number of claimants went up by about 40 per cent while Labour were in power, as we found out in a previous FactCheck.

That sharp rise in youth unemployment coincided with the economic downturn, a phenomenon seen in previous recessions.

Youth unemployment has risen in every country in Europe except Germany since the first quarter of 2008. The UK unemployment rate among 15-24-year-olds in the third quarter of 2013 was lower at 21 per cent, compared with an EU average of 23.5 per cent.

Long-term joblessness among young people, defined here as 18-24-year-olds claiming jobseeker’s allowance for more than a year, is a persistent black spot in an otherwise improving UK labour market.

What is Labour going to do about it?

A Labour government would spend an estimated £5.5bn over the five years of the next parliament subsidising temporary jobs for every 18-24-year who has been on the dole for more than 12 months.

The claimant would get a job for six months, with the government paying the minimum wage for 25 hour a week and throwing in an extra £500 for training and admin costs.

The employer would have to provide on-the-job training and people who refuse to take up job offers could have their benefits stopped.

Do the numbers add up?

The independent House of Commons library says the plan will cost £1.9bn in the first year and £900m a year for the rest of the next parliament: £5.5bn in total.

Labour says some of the money will come from a repeat of the tax on bank bonuses that the last Labour chancellor, Alistair Darling, did in 2010.

The rest will come from a cut in the rate of pension tax relief to 20 per cent for people earning over £150,000 a year.

The House of Commons library thinks this will raise £900m to £1.3bn a year. So up to £1bn will have to come from the one-off bank bonus tax.

“Labour have now committed themselves to spending the proceeds of bank tax revenues 10 times over on 11 different things.”

This is largely true but slightly off-target as far as today’s announcement is concerned, as the list of 11 different Labour policies includes things to be paid for by rises in the permanent bank levy – a different tax.

But it’s true that Labour ministers have repeatedly called on the government to repeat the 2010 raid on bonuses and spend the money on various things.

In 2011 Ed Miliband said £2bn could be raised from repeating the bank bonus tax, and called for the government to spent £600m on youth jobs, £1.2bn on housebuilding and £200m on expanding the regional growth fund.

The Labour leader also made the vague suggestion that another windfall tax on bonus payments “should play a part in reducing the deficit”, but it’s not clear exactly what he had in mind or how much we were talking about.

In July 2011 the shadow business secretary, Chuka Umunna, said a modest £5m from bankers’ bonuses could be used to turn empty shops on ailing high streets into community centres.

But these have all been forgotten today, with Labour saying that the new youth jobs guarantee is the only cast-iron policy promise that will be funded from the bonus tax and pension relief cut.

A party spokesman told us that all those other ideas were Labour’s suggestions to the government on what to tax and spend in previous years, not policy commitments for the next parliament.

This is probably technically true, although it still leaves open the question of how Labour will pay for its various aspirations.

The party hasn’t said whether today’s news means it has shelved those other plans or whether, as the Conservatives are now demanding to know, they will be paid for by more borrowing.

The question of whether the sums for today’s youth jobs plan add up really boils down to how much the bank bonus tax will raise. Labour needs to scoop at least £1bn from the banks to make the new scheme work.

What happened last time?

Labour says Alistair Darling got £3.5bn when he sprang the bonus tax on the City in 2010. Opponents invariably quote a figure of £2.3bn. Who’s right? Both, depending on how you look at it.

That £3.5bn is the gross amount of money brought in, according to the Office for Budget Responsibility. The Treasury calculated that the net yield was much less – about £2.3bn.

That was because banks were assumed to have responded to the tax by paying lower bonuses than they would otherwise have done, reducing income tax and national insurance receipts somewhat.

That net yield of £2.3bn was more than four times the £550m the Treasury predicted would be raised by the tax.

Darling doubt

Despite the fact that the policy raised a lot more than expected, Mr Darling said Labour would probably not repeat it, as the banks would figure out how to get around the rules.

He said: “I think it will be a one-off thing because, frankly, the very people you are after here are very good at getting out of these things and … will find all sorts of imaginative ways of avoiding it in the future.”.

Nevertheless, Labour insists a repeat tax would raise £1.5-2bn “on a cautious estimate”, based on the fact that bonus pools at many of the big banks are up on last year.

Unlike the other sums Labour is floating today, this is not a figure endorsed by the House of Commons library or other independent analysts.

The verdict

There’s a fair bit of spin from both sides here. The Conservatives have lumped together two different bank taxes proposed by Labour – a one-off swoop on bonuses and a higher permanent bank levy – to stand up its claim that the party has effectively already spent the funding for this new policy on other things.

But it remains the case that Labour has over the years suggested using £2bn from a bonus tax to cover at least £2.5bn worth of projects.

Labour is trying to draw a line under the ideas it was floating in 2011 and there is a sense that a more rigorous approach to costing official policy starts today.

It has yet to offer a detailed answer to the question of whether other aspirations like boosting housebuilding will be paid for by adding to the national debt.

The biggest uncertainty here is that we don’t know how much another bank bonus tax will raise, and whether the last Labour chancellor was right to say that it ought to remain “a one-off thing”.

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